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GRUPO4X Inc. and VectorGlobal IAG Canada Inc.
Headnote
Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations a registered firm must not permit an individual to act as a dealing, advising or associate advising representative of the registered firm if the individual is registered as a dealing, advising or associate advising representative of another registered firm -- The Filers will be affiliated entities and have valid business reasons for a representative to be registered with both firms -- The Filers have policies in place to handle potential conflicts of interest -- The Filers are exempted from the prohibition.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System, s. 4.7.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 4.1 and 15.1.
March 20, 2019
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(the Jurisdiction)
AND
IN THE MATTER OF
GRUPO4X INC.
AND
VECTORGLOBAL IAG CANADA INC.
(collectively, the Filers)
DECISION
Background
The securities regulatory authority or regulator in Ontario (Decision Maker) has received an application from the Filers for a decision under the securities legislation (the Legislation) of the Jurisdiction for relief from the restriction under paragraph 4.1(1)(b) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) (the Dual Registration Restriction), pursuant to section 15.1 of NI 31-103, to permit Edan Howell (Mr. Howell) to be registered as an advising representative of Grupo4x Inc. and VectorGlobal IAG Canada Inc. (the Exemption Sought).
Interpretation
Terms defined in National Instrument 31-103 have the same meaning if used in this decision, unless otherwise defined.
Representations
The decision is based on the following facts represented by the Filers:
1. The head office of Grupo4x Inc. is in Toronto, Ontario.
2. Grupo4x Inc. is registered in Ontario in the category of restricted portfolio manager, exempt market dealer and investment fund manager.
3. VectorMex International, Inc. will acquire 52% of the voting shares of Grupo4x Inc., which will be held through VectorGlobal WMG Canada Inc., a holding company that will hold no other assets and not conduct any business.
4. VectorMex International, Inc.is a Delaware holding company that is the parent of three different business lines operating under the trade name VectorGlobal. These include a U.S. based insurance business called VectorGlobal ISG and regulated by the State of Florida; a U.S. based portfolio management business called VectorGlobal IAG, regulated by the SEC with over US$400 million of client assets under management; and a U.S. based securities broker-dealer operating under the name of VectorGlobal WMG. The largest of these businesses is VectorGlobal WMG (www.vectorglobalwmg.com), which is registered with the SEC and regulated by FINRA. The headquarters of Vectormex International are in Miami, Florida, but has additional offices in New York, and Houston. It's primary custodian is Pershing LLC with whom it has over US$2 billion of client assets under custody.
5. Grupo4x Inc. acts as a portfolio manager that exercises discretionary authority over the assets of one pooled fund, Grupo4x Limited Partnership. Its primary business is trading foreign exchange pairs with a view to earning a profit for the limited partners. Grupo4x Inc.'s target market is accredited investors living in either Ontario or Mexico.
6. The head office of VectorGlobal IAG Canada Inc. is in Toronto, Ontario.
7. VectorGlobal IAG Canada Inc. is a 100% wholly-owned subsidiary of VectorMex International, Inc.
8. VectorGlobal IAG Canada Inc. has applied for registration as a portfolio manager in Ontario.
9. Since the Filers will be under common control, each such entity will be an affiliate of the other and will be affiliated registrants.
10. Mr. Howell is a resident of Toronto, Ontario and is a registered advising representative, dealing representative, officer, Chief Compliance Officer, shareholder and director of Grupo4x Inc. Mr. Howell is one of the founders of Grupo4x Inc. and has acted as advising representative since it was registered as a portfolio manager in February 2018. In that capacity he is the lead portfolio manager of Grupo4x Limited Partnership.
11. Mr. Howell has, and will continue to have, sufficient time and resources to adequately meet his obligations to each of Grupo4x Inc. and VectorGlobal IAG Canada Inc.
12. As portfolio manager at VectorGlobal IAG Canada Inc. Mr. Howell will be responsible for leveraging the work done by the parent company's portfolio management group in order to ensure the suitability of the models for clients of the Toronto office. His first objective is to recruit additional advising representatives and supervise their activities. In the future, once the additional advising representatives have been retained, Mr. Howell may cease to act as an advising representative in order to focus on supervision.
13. Mr. Howell is familiar with the business model of Grupo4x Inc., the proposed business model of VectorGlobal IAG Canada Inc. and the business model of VectorGlobal's other affiliates that presently carry out portfolio management businesses in other countries.
14. There will be minimal potential for conflicts of interest or client confusion because there is very little overlap between the activities of Grupo4x Inc. and VectorGlobal IAG Canada Inc. Grupo4x Inc. is an investment manager overseeing a single fund that engages in currency pairs trading. VectorGlobal IAG Canada Inc. will focus on financial advice and strategies for individual investors, families, businesses and institutional funds. The client base of each firm will be different.
15. Dual registration as an advising representative (portfolio manager) of both Filers would allow Mr. Howell to continue to assist in advising Grupo4x Inc. while also assisting in advising VectorGlobal IAG Canada Inc. Registration as an advising representative for Mr. Howell would permit him to conduct similar activities. Grupo4x Inc. is a specialized fund while VectorGlobal IAG Canada Inc. will be building broad-based portfolios for clients. VectorGlobal IAG Canada Inc does not plan to manufacture its own pooled funds and instead will follow models established by the parent portfolio management group. From Canada, VectorGlobal IAG Canada Inc. will be assessing the suitability of each model for particular clients and, if necessary, making minor amendments to suit individual clients, but VectorGlobal IAG Canada Inc. will not be running their own models or funds from Canada. Grupo4x Inc. and VectorGlobal IAG Canada Inc., who Mr. Howell will be advising, will not have similar investment strategies and are not expected to compete for the same investments, thus minimizing certain conflicts of interest. If, in the future, the portfolio management group in Miami decided that Grupo4x Limited Partnership is a suitable fund to include in some of its models as part of an alternative asset allocation (no more than 5%), that would not be a decision that would include Mr. Howell, nor would there be a situation where decisions are being made to put clients into either the Grupo4x Limited Partnership versus a VectorGlobal portfolio.
16. The interests of the Filers are aligned in connection with the role of Mr. Howell.
17. Mr. Howell's role will be to support the business activities and interests of both Grupo4x Inc. and VectorGlobal IAG Canada Inc.
18. Mr. Howell will be subject to supervision by, and the applicable compliance requirements of, both Grupo4x Inc. and VectorGlobal IAG Canada Inc. Both Grupo4x Inc. and VectorGlobal IAG Canada Inc.'s Ultimate Designated Persons will supervise the proper application of those conflict of interest policies.
19. Each of the Filers' respective Ultimate Designated Persons will monitor and assess whether Mr. Howell has sufficient time and resources to adequately serve each Filer and its clients.
20. The Filers do not expect that the dual registration of Mr. Howell will create significant additional work for Mr. Howell and are confident that Mr. Howell will have sufficient time to adequately serve both firms.
21. Grupo4x Inc. and VectorGlobal IAG Canada Inc. are subject to the restrictions and requirements in Part 13 of NI 31-103.
22. Grupo4x Inc. is not in default of any requirement of securities legislation in Ontario.
23. VectorGlobal IAG Canada Inc. is not in default of any requirement of securities legislation in Ontario.
24. In the absence of the Exemption Sought, Grupo4x Inc. and VectorGlobal IAG Canada Inc. would be prohibited by the Dual Registration Restriction from permitting Mr. Howell to act as advising representatives of both Grupo4x Inc. and VectorGlobal IAG Canada Inc., even though Grupo4x Inc. and VectorGlobal IAG Canada Inc. will be affiliates and have controls and compliance procedures in place to deal with their advising activities.
25. The dual registration of Mr. Howell will not give rise to the conflicts of interest that may be present in a similar arrangement involving unrelated, arm's length firms. The interests of Grupo4x Inc. and VectorGlobal IAG Canada Inc. are aligned in connection with the role of Mr. Howell which will be to support the business activities and interest of both Filers in respect of their business activities.
26. The Filers each have adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of Mr. Howell and will be able to deal appropriately with any such conflicts. Further, it is expected that, if the Exemption Sought is granted, Mr. Howell will be acting as an advising representative for Grupo4x Inc. and VectorGlobal IAG Canada Inc., which each have different investment strategies. This will further mitigate the risks of conflicts of interest arising from the dual registration of Mr. Howell.
27. Mr. Howell will be under the supervision of both Grupo4x Inc. and VectorGlobal IAG Canada Inc. and will be subject to all policies and procedures addressing conflicts of interest that may arise as a result of the dual registration.
28. Mr. Howell will act in the best interest of all clients of each Filer and will deal fairly, honestly and in good faith with these clients.
29. The relationship between Grupo4x Inc. and VectorGlobal IAG Canada Inc., and the fact that Mr. Howell is dually registered with both Grupo4x Inc. and VectorGlobal IAG Canada Inc., will be fully disclosed to clients of each of Grupo4x Inc. and VectorGlobal IAG Canada Inc. that deal with Mr. Howell. The information will be disclosed to Grupo4x Inc. clients, and current prospective clients, of Mr. Howell, as applicable, to inform them of Mr. Howell's new registration with VectorGlobal IAG Canada Inc. for which Mr. Howell will be an advising representative. This disclosure will be sent once the registration of Mr. Howell with VectorGlobal IAG Canada Inc. has been approved. Disclosure regarding the dual employment of Mr. Howell will also be disclosed in writing and in any offering documentation for each of the Grupo4x Inc. and VectorGlobal IAG Canada Inc. for which Mr. Howell acts as an advising representative.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision. The decision of the principal regulator under the Legislation is that the Exemption Sought is granted on the following conditions:
i. Mr. Howell is subject to supervision by, and the applicable compliance requirements of, both Filers;
ii. The Ultimate Designated Person of each Filer ensures that Mr. Howell has sufficient time and resources to adequately serve each Filer and its respective clients;
iii. The Filers each have adequate policies and procedures in place to address any potential conflicts of interest that may arise as a result of the dual registration of Mr. Howell and deal appropriately with any such conflicts; and
iv. The relationship between the Filers and the fact that Mr. Howell is dually registered with both Filers is fully disclosed to clients of each of them in writing that deal with such person.
"Felicia Tedesco"
Deputy Director, Compliance and Registrant Regulation
Ontario Securities Commission